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Chapter 8 E-Commerce and Web 2.0 Study Questions Q1: How do companies use e-commerce? Q2: How does e-commerce improve market efficiency? Q2.5: How does e-commerce impact the competitive forces of the market? Q3: What economic factors disfavor e-commerce? Q4: What technology is needed for e-commerce? Q4.1 What are the product and market relationships in ecommerce? Q4.2 How do you find customers and create relationships? Q5: What is Web 2.0? Q6: How can businesses benefit from Web 2.0? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-2 Q1: How Do Companies Use E-Commerce? • E-Commerce—buying and selling goods and services over public and private networks • Categories of e-commerce – Merchant companies • Take title to goods they sell – Non-merchant companies • Arrange purchase or sale of goods and services owned and provided by others Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-3 E-Commerce Merchant Companies • Business-to-Consumer (B2C) – Web storefront – Customer enters storefront and manages creating own order • Business-to-Business (B2B) – Sales between companies • Business-to-Government (B2G) – Sales between government and businesses Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-4 Non-merchant E-Commerce Companies • Online auctions most common example • Clearinghouses – Provide goods and services at stated price, arrange for delivery, but do not take title – Amazon.com example of clearinghouse • Electronic exchange – Matches buyers and sellers – Priceline.com Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-5 Q2: How Does E-Commerce Improve Market Efficiency? • Disintermediation – Elimination of middle layers in supply chain, especially wholesale and retail links • Improved information on prices and terms • Knowledge about price elasticity – Direct experiments on customers • Amazon uses it to maximize revenue through direct interaction • Price sensitivity determined directly from customer • Advertising • Messaging Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-6 Q2.5: How does e-commerce impact the competitive forces of the market? • Because of e-commerce, in most industries… – Buyer power has increased due to access to more suppliers and the ability to do comparative shopping – Entry barriers have lessened and geographic reach has increased – Threat of substitute products or services has increased due to the ease of customer access Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-7 Q3: What Economic Factors Disfavor E-Commerce? • Economic factors in disintermediation – Channel conflict – Price conflict with existing channels – Logistics expenses increase for manufacturer (small quantities) – Customer-service expenses increase for manufacturer (1 on 1 direct contact) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-8 Q4: What Technology Is Needed For E-Commerce? • Three-Tier Architecture 1. User tier (Presentation - Web browser) 2. Server tier (Logic - Web, application server) 3. Database tier (Data - DBMS server) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-9 Three-Tier Architecture Figure 8-5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-10 Q4.1 What are the product and market relationships in e-commerce? Business to Consumer • Convenience – Lower priced – Purchased frequently – Example: common food items • Specialty – Higher priced – Purchased less frequently – Mass customization – the ability to give customers the opportunity to tailor products or services – Example: Dell – customized computer purchases Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-11 Q4.1 What are the product and market relationships in e-commerce? (cont.) Business to Consumer (cont.) • Commoditylike – Same no matter where you purchase it – Examples: books, music, movies – Price and ease of ordering are important • Digital – Purchased and delivered over the Internet – Best product type for B2C e-commerce – Examples: Music, software Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-12 Q4.1 What are the product and market relationships in e-commerce? (cont.) Business to Business • Maintenance, repair, and operations (MRO) materials (indirect materials) – materials necessary for running a company but do not relate to the company’s primary product or service – Buyers in B2B make large purchases – Can purchase through negotiation or auction • Direct materials – materials that are used in production in a manufacturing company or are placed on the shelf for sale in retail environments – Quality, quantity, and delivery timing are important Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-13 Q4.1 What are the product and market relationships in e-commerce? (cont.) Business to Business • Horizontal e-marketplace – connects buyers and sellers across many industries – Primarily for MRO materials – All industries need office supplies, travel, and the like • Vertical e-marketplace – connects buyers and sellers in a given industry – Primarily for direct materials – Each industry has unique direct material needs – Covisint (http://www.covisint.com/) – automotive Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-14 The Dimensions of Electronic Commerce Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-15 Additional e-Commerce Models • e-Government – Government to Citizen (G2C) • IRS • Pa. Fish and Boat Commission – Government to Business (G2B) • Federal Business Opportunities • FirstGov Portal Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-16 Q4.2 How do you find customers and create relationships? • Business to Consumer – Marketing mix – set of marketing tools your organization will use to pursue its marketing objectives in reaching and attracting potential customers • • • • Registering with search engines Online ads Viral marketing Affiliate programs Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-17 Why Internet Advertising? • • • • • • • • • • 3/4 of PC users gave up some television time Statistics not readily available on print or TV ads Printed ads can’t be targeted to specific individuals Cost Richness of format Personalization Timeliness Participation Location-basis Digital branding Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-18 Registering with Search Engines • Some search engines will list your site for free – Get found by Google? • Others charge a fee – – – – Cost Per Click – CPC Cost Per Thousand Impressions - CPM Adwords For an additional fee, your site can appear at top of a search list (every time). The more you are willing to pay for the keyword, the higher your position. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-19 Online Advertising • AdSense – Google inserts ads that match Web page content – Google pays Web page owner for every click on ad – Web site owners can enroll in this program to enable text, image, and more recently, video advertisements on their Web sites Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-20 Online Advertising (cont.) Advertisement Methods • • • Pop-under ad—an ad that appears underneath the current browser window, so when the user closes the active window, they see the ad (valueclick) Interstitials– an initial Web page or a portion of it that is used to capture the user’s attention for a short time while other content is loading E-mail – Opt-in Advertising (Mypoints) – Several million users may be reached directly – Problems: junk mail, spamming • Pop-Up Blockers – Who stands to benefit from these? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-21 E Commerce - Class II Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-22 Q4.2 How do you find customers and create relationships? • Business to Consumer – Marketing mix – set of marketing tools your organization will use to pursue its marketing objectives in reaching and attracting potential customers • • • • Registering with search engines Online ads Viral marketing Affiliate programs Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-23 Online Advertising (cont.) • Standardized ads—on February 26, 2001, the Internet Advertising Bureau, an industry trade group, adopted four standard ad sizes for the Internet: – Larger and more noticeable than banner ads – Look like the ads in a newspaper or magazine – Users read these ads four times more frequently than banners – Appear on Web sites in columns or boxes Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-24 Viral Marketing • Encourages users of a product or service supplied by a B2C business to encourage friends to join in as well – Blue Mountain Arts (www.bluemountain.com) – Send a card – Card has link so the other person can send you a card back Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-25 Affiliate program • An arrangement between two e-commerce sites that directs viewers from one site to another – If viewers buy at the second site, the second site pays a small fee to the first site – Usually a percentage of the sale – AMAZON Associate Program Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-26 Affiliate program (cont.) • Click-throughs and conversion rates are important – Click-through – count of the number of people who visit one site and use an ad to get to another – Conversion rate – percentage of potential customers who actually buy something Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-27 Q4.2 How do you find customers and create relationships? (cont.) Business to Business Marketing • Much more focused • Not usually done with generic ads designed for mass distribution – Adwords can be used to target business customers • Directories provide focused opportunities – (Thomas Register) • Often take place in e-marketplaces Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-28 e-marketplaces • Private e-marketplaces: owned by a single company (Stapleslink.com) – Sell-side e-marketplace: A company sells products to qualified companies – Buy-side e-marketplace: A company makes purchases from invited suppliers • Public e-marketplaces: Usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges (ChemConnect Trading Center ) • Consortia: e-marketplaces owned by a small group of large vendors, usually in a single industry (Covisint) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-29 e-marketplaces (cont.) Purchasing Models • Catalogue Sales - Fixed price • Auctions – Dynamic price – Forward – Sell Side – Reverse – Buy side Why should you hold more Reverse Auctions than you are required to enter? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-30 Q5: What Is Web 2.0? • Refers to loose cloud of capabilities, technologies, business models, philosophies • “the development and evolution of web-based communities, hosted services, and applications such as social-networking sites, video-sharing sites, wikis, blogs, mashup and folksonomies.” (wikipedia.org) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-31 Software as a (Free?) Service • SaaS—applications that run on a server somewhere in Internet cloud (aka. – ASP or Cloud Computing) • Removes the need for customer investment in hardware and support. (Use based pricing) • Examples: – – – – Google Docs & Spreadsheets Google Groups Google Earth Google Maps Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-32 Other Characteristics of Web 2.0 • Organic user interface – changing interfaces frequently • Mashups – MyMaps—users make custom modifications to Google maps and publish to share with others • Participation and ownership differences – Web 2.0 is more about participating and sharing than owning content – The YouTube.com challenge – Copyrights… Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-33 Q6: How Can Businesses Benefit from Web 2.0? • Social Networking – Interaction of people connected by hobbies, friendship, business association, medical, health, or other common trait – Building online communities – Facebook, MySpace Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-34 Q6: How Can Businesses Benefit from Web 2.0? (cont’d) • Mashups – “. . . a mashup is a Web application that combines data from more than one source into a single integrated tool; an example is the use of cartographic data from Google Maps to add location information to real-estate data, thereby creating a new and distinct Web service that was not originally provided by either source.” (wikipedia.org) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-35 User-Generated Content (UGC) • Sharing pictures, videos • GlueTube—sharing woodworking projects and techniques • CNN iReport • Flickr • MetaCafe • Zillow.com—free home/condominium appraisals – Resource for house-buying process – Users can publish opinions about transportation, noise, schools, and so on in neighborhood Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-36 Who Is in Control? • Systems that deal with assets, financial transactions, private information, and so on require some level of control • Some business processes are not suitable for Web 2.0 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-37 Study Questions Q1: How do companies use e-commerce? Q2: How does e-commerce improve market efficiency? Q2.5: How does e-commerce impact the competitive forces of the market? Q3: What economic factors disfavor e-commerce? Q4: What technology is needed for e-commerce? Q4.1 What are the product and market relationships in ecommerce? Q4.2 How do you find customers and create relationships? Q5: What is Web 2.0? Q6: How can businesses benefit from Web 2.0? Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-38 Chapter 8 E-Commerce and Web 2.0